Stay with me here, it gets complicated. You read the title correctly. I have two emergency funds and think you should too. While it kinda defeats the purpose of having an “Emergency Fund,” let me explain why I decided to have two so that hopefully you can decide what works best for you.
The purpose of an emergency fund is to pay for, well, emergencies. Lost wages. Broken car. Unexpected home repair. Medical expenses. However, since I purchased a home that is rather old and I firmly believe in Murphy’s Law, my anxiety has led me down a different path of preparedness.
Having saved up a 6- month emergency fund, paid off all debt, and feeling financially comfortable, it seems that every time I turnaround, something new pops-up. Clogged toilet, slow moving drains, car repairs, window cracks, clothes that are too small, everything! While my emergency fund is in place to cover those expenses, I view it a bit differently. I want my primary emergency fund to be used solely in case I lose my job or have some extended leave due to a medical emergency – the primary reason why we save 3-6 months of expenses.
All of those other “emergencies” should be taken care of either through increased cash flow or extra savings beyond my 6-month stash, so that the primary emergency fund remains untouched. In essence, I’ll treat my 6 months of savings as if it doesn’t exist and anything above that serves as my secondary emergency fund – for anything that happens – because we all know that life happens.
Why do I feel this way? Its simple. If I saved up 6 months of expenses but tapped it for every common “emergency,” then I’d never truly have an emergency fund. I’d constantly have to replenish it. If, after I saved my primary fund then started saving into a secondary fund, then I’d always have my 6-month fund available, should a true tragedy happen like a job loss. This is what allows me to sleep like a baby at night.
If you follow Dave Ramsey’s Baby Steps, then I would not delay contributing to my retirement account after saving the primary emergency fund, rather, I’d figure out a way to divert some money into the secondary one, like a step 3B. For me, since I know that I am not saving for my kids’ college, I’d replace step 5 with a secondary emergency fund. That’s it!
Its up to you what advice you take and what ultimately helps you rest easy at night, but this is a suggestion that’s worth a try if you want to be sure that you’re always prepared should the unexpected and truly unexpected happens.
What’s your view? Would having two emergency funds make you feel more secure about your finances? Post your thoughts in the comments below. Happy Saving! Live Well!